The Importance Of Knowing How To Budget

How can you keep the money in your pocket, if you don’t know how it comes in and how it goes out? Granted, the most painful part about saving money is not to spend it. Deferring immediate gratification for the future takes some real discipline. Having a realistic financial goal in sight with a proper plan and budget will help one to succeed on this difficult saving path.

The most important things about making a good budget is that you must be truthful, realistic, and comprehensive. A budget is a detailed plan that you and your family can achieve, not some math exercises on additions and subtractions on paper. You can make up a balanced budget, with wrong or unrealistic numbers in them, or leaving out certain spending items. Or you can make a budget with some 5% to 10% head room on every item, plus a line for miscellaneous spending for general breathing room on the entire budget, or to account for little things that are not accounted for.

Budgeting is essentially the time to be honest with yourself and your family. Try not to persuade yourself either into believing that vacation or the morning StarBucks coffee is a one-time event that you don’t need to budget it for. Once you have a budget on paper, you should re-visit and refine your budgets every once in a while to check if all the numbers are realistic, and see if your budget still truly reflects on the ways that you spend your money. Go over your old utility and credit card bills, and see if your budget is correct. Also go over your bank statements to see if your projected savings have gone into your piggy bank accounts. If not, you should check and see why your budget plan has gone wrong. In fact, this self-discovery process can take a couple of years to get everything right. Quite often, you may over-spend your annual budget for Christmas gifts or vacation travels, and still don’t know how the money disappears.

In summary, making a good budget involves the following:

  1. Be comprehensive. Don’t leave out any items that are more than about 3% of your total spending. Budget monthly by dividing 12 for those annual one-time events.
  2. Be realistic and at ease. Don’t try to be 100% accurate on every item. You can either leave some room for every item or add a misc item for your total head room.
  3. Negotiate and compromise with you & your family member to make financial sacrifices for the long term well being.
  4. Verify the correctness of your budget, and make modifications if necessary.

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